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Can Q4 Earnings Propel PNC Financial (PNC) Stock to New Highs?

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PNC Financial (PNC - Free Report) , which is trading close to its 52-week high with 36.2% gain in the October-December period, might rally further post fourth-quarter 2020 results on Jan 15. That’s because improvement in mortgage banking performance and strong equity markets are expected to have offset the slowdown in lending activities.

Moreover, the company is likely to beat earnings estimates this time around.

Our proven model shows that PNC Financial has the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for PNC Financial is +2.54%.   

Zacks Rank: The company currently carries a Zacks Rank of 3.

The company’s activities in the to-be-reported quarter were adequate to win analysts’ confidence. As a result, its Zacks Consensus Estimate for earnings of $2.65 has moved up 3.5% in the past 30 days. Nevertheless, the figure indicates a 10.8% decline from the year-ago reported figure. The consensus estimate for sales is pegged at $4.14 billion, suggesting a decline of 10.1% year over year.

Now let’s discuss the factors that are likely to have impacted the company’s fourth-quarter results:

Lower Net Interest Income (NII): The Fed continued to keep interest rates at near zero in order to shield the U.S. economy from the coronavirus outbreak-related mayhem. This is likely to have substantially hurt net interest margin and NII.

Also, per the Fed’s latest data, the loan balance is likely to have been affected by a fall in commercial & industrial and consumer loans.

However, the Zacks Consensus Estimate for average interest earning assets of $413.2 billion for the quarter indicates 15.7% year-over-year growth. The consensus estimate for net interest income is $2.5 billion, suggesting marginal fall.

Notably, management expects average loans to decline in the low-single-digit range on a sequential basis in the fourth quarter and NII to remain stable.

Higher Non-Interest Revenues: The quarter witnessed a rebound in the equity markets, resulting in most asset-management businesses recording net inflows during the to-be-reported quarter. Thus, asset management fee is likely to have been positively impacted. However, the sale of the company’s investment in BlackRock might have been an offsetting factor.

Also, historically low mortgage rates during the fourth quarter drove refinancing activities, along with growth in new originations. Thus, these factors are expected to have supported PNC Financial’s mortgage banking fees in the to-be-reported quarter.

Decent consumer spending scenario on easing of lockdown measures might have favorably impacted card fees during the quarter. The Zacks Consensus Estimate for consumer services revenues of $392 million indicates a slight rise from the prior-year quarter reported number.

Strong equity markets resulted in a rise in follow-up equity issuances, while IPO activities rebounded in the fourth quarter. Thus, equity underwriting fees are expected to have provided some support.

Further, deal making rebounded as economic and business activities gradually resumed. Thus, consensus estimate for the company’s corporate services fees indicates a rise of 1.4% year over year.

Moderate Decline in Expenses: The bank’s continued efforts toward cost savings might have been partially offset by its digital expansion efforts. Management expects non-interest expenses to increase 1% on a sequential basis.

Asset Quality: Management anticipates no substantial reserve builds during the fourth quarter of 2020. Also, the company expects net loan charge-offs in the range of $200-$250 million compared with $155 million reported in the third quarter.

Other Stocks That Warrant a Look

Here are a few other stocks you may want to consider, as according to our model these too have the right combination of elements to post an earnings beat this quarter.

M&T Bank Corporation (MTB - Free Report) is slated to report quarterly results on Jan 21. The company has an Earnings ESP of +0.33% and currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Earnings ESP for Citigroup (C - Free Report) is +1.29% and it carries a Zacks Rank of 3, at present. The company is scheduled to report quarterly numbers on Jan 15.

Bank of America (BAC - Free Report) is slated to report quarterly earnings on Jan 19. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +2.79%.

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